A Toronto lawyer could be facing a hefty legal bill after an unusual ruling by a New Brunswick judge in the Deer Island Credit Union fraud case.
The Deer Island Credit Union is suing its auditors for not noticing that a former employee embezzled more than $1.8 million between 1995 and 2007.
The credit union claims the auditors acted "negligently" and "in breach of contract."
'I doubt that words alone can deliver that message as clearly as a substantial award of costs.' — Justice Hugh McLellan
However, the auditors have denied responsibility in their statement of claim and in return filed a suit against 16 of the credit union's board members who served during the period of time in question.
They argued the directors should have discovered, or prevented the fraud.
The directors asked the Court of Queen’s Bench to dismiss the action against them.
Court of Queen’s Bench Justice Hugh McLellan threw out that claim and he's considering making the lawyer personally cover the costs.
"In my view it is necessary to send a clear message to enforce the principle that a claim against individual directors must not be issued without proper grounds and that the court will protect directors from ill-founded litigation," the written decision said.
"I doubt that words alone can deliver that message as clearly as a substantial award of costs."
McLellan will hold a hearing on Nov. 7 to decide the costs and that is where Sandra E. Dawe, a lawyer with Shibley Righton LLP of Toronto, could find out if she will be responsible for footing that legal bill.
"It is plain and obvious that the third party claim demonstrates a clear absence of merit and discloses no reasonable cause of action," the judge said in his written decision.
"In my view the issuance of the third party claim on May 30, 2011 was irresponsible and an abuse of the process of the court. I order that the third party claim … against the directors is struck out as not disclosing a reasonable cause of action and as an abuse of the process of the court."
And in his view, "this is a rare and exceptional case" where it "may be appropriate" to make the auditors' lawyer pay.
Michael Bray, the registrar for the Court of Queen's Bench, said such orders are rare, but not unheard of.
"The court certainly is within its rights to impose a sanction on the lawyer if it feels that what the lawyer has done has perhaps, you know, not been in the best interest of the proceeding before the court," Bray said.